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- Net sales increased 11%, driven by comparable sales and foreign currency benefits
- Comparable sales increased 5%, with Hollister up 6% and Abercrombie up 3%
- Gross margin expanded to 60.5%, up 20 basis points from last year
- Continued operating expense discipline, with 460 basis points of leverage
| Net Loss Per Diluted Share Summary | |||||
| 2018 | 2017 | ||||
| GAAP | $(0.62) | $(0.91) | |||
| Excluded Items (1) | (0.06) | — | |||
| Adjusted Non-GAAP | $(0.56) | $(0.91) | |||
(1) Excluded Items consist of certain legal charges, net of tax effect, in connection with a proposed settlement of a class action claim related to alleged wage and hour practices.
A description of the use of non-GAAP financial measures and a schedule reconciling GAAP financial measures to adjusted non-GAAP financial measures accompanies this release.
"We are pleased with our performance across all brands, with the consistent execution of our playbooks delivering a solid quarter of sales growth, and bottom-line improvement. Results exceeded our expectations driven by a 5% increase in comparable sales, gross margin expansion, and 460 basis points of expense leverage. Hollister continued to drive strong sales growth across channels and geographies and Abercrombie built momentum with another quarter of positive comparable sales led by strength in
"Our efforts are focused on transforming our operating model to deliver an improved customer experience, with strategic investments in omnichannel experience, marketing, and tools and technology to strengthen our execution and customer engagement. We are off to a strong start in 2018 and we are committed to delivering top and bottom line growth, as we work towards our goal of being a leading global omnichannel apparel retailer."
First Quarter Sales
Net sales were
| Fiscal 2018 Comparable Sales Summary (1) | ||||||||
| Brand | Geography | |||||||
| First Quarter | First Quarter | |||||||
| Hollister | 6% | United States | 8% | |||||
| Abercrombie (2) | 3% | International | 0% | |||||
| Total Company | 5% | Total Company | 5% | |||||
| (1) Comparable sales are calculated on a constant currency basis. Due to the calendar shift resulting from the 53rd week in fiscal 2017, comparable sales for the 13 weeks ended May 5, 2018 are compared to the 13 weeks ended May 6, 2017. | ||||||||
| (2) Abercrombie includes the Abercrombie & Fitch and abercrombie kids brands. | ||||||||
By brand, net sales increased 13% to
By geography, net sales increased 10% to
Direct-to-consumer net sales increased 14% to
Additional First Quarter Results
The gross profit rate was 60.5%, up 20 basis points from last year, and approximately flat on a constant currency basis, net of hedging.
Stores and distribution expense was
Marketing, general and administrative expense was
Net other operating income was
Operating loss was
The effective tax rate was 8%, as tax benefits of
Net loss attributable to
Cash, Inventory and Borrowings
The company ended the first quarter with
The company ended the first quarter with
Other Developments
As previously announced, on
In addition, the company repurchased approximately 0.8 million shares of its Class A Common Stock at an aggregate cost of approximately
Outlook
For fiscal 2018, the company now expects:
Comparable sales to be up in the range of 2% to 4%
Net sales to be up in the range of 2% to 4%, with net sales in the second quarter to be up high-single digits, including benefits from changes in foreign currency exchange rates and the calendar shift
- Changes in foreign currency exchange rates to benefit net sales by approximately
$50 million , including approximately$25 million in the first quarter, and operating income by approximately$15 million
- The calendar shift and the loss of fiscal 2017's 53rd week to adversely impact net sales by approximately
$40 million , with benefits to first quarter and second quarter net sales of approximately$10 million and$30 million , respectively, to be more than offset by adverse impacts to third quarter and fourth quarter net sales of approximately$20 million and$60 million , respectively
A gross profit rate up slightly from the fiscal 2017 rate of 59.7%
GAAP operating expense, including certain legal charges of
A weighted average fully-diluted share count of approximately 70 million shares, excluding the effect of potential share buybacks
For fiscal 2018, the company expects the full year effective tax rate to be in the mid-30s, including discrete non-cash income tax charges of approximately
The company is now targeting capital expenditures to be in the range of
The company plans to open 22 full-price stores in fiscal 2018, including 13 Hollister and nine Abercrombie stores. In addition, the company anticipates closing up to 60 stores in the U.S. during the fiscal year through natural lease expirations.
Conference Call
Today at
A presentation of first quarter results will be available in the "Investors" section at corporate.abercrombie.com at approximately
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
A&F cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Press Release or made by management or spokespeople of A&F involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond the company's control. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," and similar expressions may identify forward-looking statements. Except as may be required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements. The following factors, in addition to those disclosed in "ITEM 1A. RISK FACTORS" of A&F's Annual Report on Form 10-K for the fiscal year ended February 3, 2018, in some cases have affected, and in the future could affect, the company's financial performance and could cause actual results for Fiscal 2018 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this Press Release or otherwise made by management: changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits, could have a material adverse effect on our business, results of operations and liquidity; failure to anticipate customer demand and changing fashion trends and to manage our inventory commensurately could adversely impact our sales levels and profitability; our market share may be negatively impacted by increasing competition and pricing pressures from companies with brands or merchandise competitive with ours; fluctuations in foreign currency exchange rates could adversely impact our financial condition and results of operations; our ability to attract customers to our stores depends, in part, on the success of the shopping malls or area attractions that our stores are located in or around; the impact of war, acts of terrorism or civil unrest could have a material adverse effect on our operating results and financial condition; the expansion of our direct-to-consumer sales channels and omnichannel initiatives are significant components of our growth strategy, and the failure to successfully develop our position across all channels could have an adverse impact on our results of operations; our international growth strategy and ability to conduct business in international markets may be adversely affected by legal, regulatory, political and economic risks; failure to successfully implement our strategic plans could have a negative impact on our growth and profitability; failure to protect our reputation could have a material adverse effect on our brands; our business could suffer if our information technology systems are disrupted or cease to operate effectively; we may be exposed to risks and costs associated with cyber-attacks, credit card fraud and identity theft that would cause us to incur unexpected expenses and reputation loss; our reliance on DCs makes us susceptible to disruptions or adverse conditions affecting our supply chain; changes in cost, availability and quality of raw materials, labor, transportation, and trade relations could cause manufacturing delays and increase our costs; we depend upon independent third parties for the manufacture and delivery of all our merchandise, and a disruption of the manufacture or delivery of our merchandise could result in lost sales and could increase our costs; we rely on the experience and skills of our senior executive officers and associates, the loss of whom could have a material adverse effect on our business; extreme weather conditions, including natural disasters, pandemic disease and other unexpected events, could negatively impact our facilities, systems and stores, as well as the facilities and systems of our vendors and manufacturers, which could result in an interruption to our business and adversely affect our operating results; fluctuations in our tax obligations and effective tax rate may result in volatility in our results of operations; our litigation exposure could have a material adverse effect on our financial condition and results of operations; failure to adequately protect our trademarks could have a negative impact on our brand image and limit our ability to penetrate new markets; changes in the regulatory or compliance landscape and compliance with changing regulations for accounting, corporate governance and public disclosure could adversely affect our business, results of operations and reported financial results; and, our Asset-Based Revolving Credit Agreement and our Term Loan Agreement include restrictive covenants that limit our flexibility in operating our business.
About
The brands share a commitment to offering products of enduring quality and exceptional comfort that allow consumers around the world to express their own individuality and style. The Company operates over 850 stores under these brands across
| Investor Contact: | Media Contact: | |
| Brian Logan | Ian Bailey | |
| Abercrombie & Fitch | Abercrombie & Fitch | |
| (614) 283-6877 | (614) 283-6192 | |
| Investor_Relations@anfcorp.com | Public_Relations@anfcorp.com |
| Abercrombie & Fitch Co. | |||||||||||||
| Condensed Consolidated Statements of Operations | |||||||||||||
| (in thousands, except per share data) | |||||||||||||
| (Unaudited) | |||||||||||||
| Thirteen Weeks Ended | Thirteen Weeks Ended | ||||||||||||
| May 5, 2018 | % of Net Sales |
April 29, 2017 | % of Net Sales |
||||||||||
| Net sales | $ | 730,899 | 100.0 | % | $ | 661,099 | 100.0 | % | |||||
| Cost of sales, exclusive of depreciation and amortization | 288,554 | 39.5 | % | 262,174 | 39.7 | % | |||||||
| Gross profit | 442,345 | 60.5 | % | 398,925 | 60.3 | % | |||||||
| Stores and distribution expense | 361,155 | 49.4 | % | 359,929 | 54.4 | % | |||||||
| Marketing, general and administrative expense | 124,897 | 17.1 | % | 109,893 | 16.6 | % | |||||||
| Asset impairment | 1,056 | 0.1 | % | 730 | 0.1 | % | |||||||
| Other operating income, net | (2,560 | ) | (0.4 | )% | (1,686 | ) | (0.3 | )% | |||||
| Operating loss | (42,203 | ) | (5.8 | )% | (69,941 | ) | (10.6 | )% | |||||
| Interest expense, net | 3,018 | 0.4 | % | 4,120 | 0.6 | % | |||||||
| Loss before taxes | (45,221 | ) | (6.2 | )% | (74,061 | ) | (11.2 | )% | |||||
| Tax benefit | (3,713 | ) | (0.5 | )% | (13,052 | ) | (2.0 | )% | |||||
| Net loss | (41,508 | ) | (5.7 | )% | (61,009 | ) | (9.2 | )% | |||||
| Less: Net income attributable to noncontrolling interests | 953 | 0.1 | % | 691 | 0.1 | % | |||||||
| Net loss attributable to Abercrombie & Fitch Co. | $ | (42,461 | ) | (5.8 | )% | $ | (61,700 | ) | (9.3 | )% | |||
| Net loss per share attributable to Abercrombie & Fitch Co.: | |||||||||||||
| Basic | $ | (0.62 | ) | $ | (0.91 | ) | |||||||
| Diluted | $ | (0.62 | ) | $ | (0.91 | ) | |||||||
| Weighted-average shares outstanding: | |||||||||||||
| Basic | 68,500 | 68,073 | |||||||||||
| Diluted | 68,500 | 68,073 | |||||||||||
| Abercrombie & Fitch Co. | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
| (in thousands) | ||||||||
| (Unaudited) | ||||||||
| May 5, 2018 | February 3, 2018 | April 29, 2017 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and equivalents | $ | 591,960 | $ | 675,558 | $ | 421,441 | ||
| Receivables | 71,490 | 79,724 | 90,346 | |||||
| Inventories | 405,107 | 424,393 | 398,750 | |||||
| Other current assets | 100,789 | 84,863 | 91,565 | |||||
| Total current assets | 1,169,346 | 1,264,538 | 1,002,102 | |||||
| Property and equipment, net | 709,007 | 738,182 | 806,057 | |||||
| Other assets | 331,861 | 322,972 | 349,806 | |||||
| TOTAL ASSETS | $ | 2,210,214 | $ | 2,325,692 | $ | 2,157,965 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 166,577 | $ | 168,868 | $ | 147,531 | ||
| Accrued expenses | 261,659 | 308,601 | 248,915 | |||||
| Short-term portion of deferred lease credits | 19,269 | 19,751 | 19,522 | |||||
| Income taxes payable | 12,784 | 10,326 | 5,264 | |||||
| Total current liabilities | 460,289 | 507,546 | 421,232 | |||||
| Long-term liabilities: | ||||||||
| Long-term portion of deferred lease credits | $ | 73,660 | $ | 75,648 | $ | 75,886 | ||
| Long-term portion of borrowings, net | 249,962 | 249,686 | 263,353 | |||||
| Leasehold financing obligations | 48,955 | 50,653 | 47,120 | |||||
| Other liabilities | 188,502 | 189,688 | 169,588 | |||||
| Total long-term liabilities | 561,079 | 565,675 | 555,947 | |||||
| Total Abercrombie & Fitch Co. stockholders' equity | 1,178,267 | 1,242,379 | 1,171,972 | |||||
| Noncontrolling interests | 10,579 | 10,092 | 8,814 | |||||
| Total stockholders' equity | 1,188,846 | 1,252,471 | 1,180,786 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,210,214 | $ | 2,325,692 | $ | 2,157,965 | ||
REPORTING AND USE OF GAAP AND NON-GAAP MEASURES
The company believes that each of the non-GAAP financial measures presented in this news release are useful to investors as they provide a measure of the company's operating performance excluding the effect of certain items which the company believes do not reflect its future operating outlook, and therefore supplement investors' understanding of comparability of operations across periods. Management used these non-GAAP financial measures during the periods presented to assess the company's performance and to develop expectations for future operating performance. The company also provides certain financial information on a constant currency basis to enhance investors' understanding of underlying business trends and operating performance, by removing the impact of foreign currency exchange rate fluctuations. The effect from foreign currency, calculated on a constant currency basis, is determined by applying current period exchange rates to prior year results and is net of the year-over-year impact from hedging. The per diluted share effect from foreign currency is calculated using a 27% tax rate. In addition, the company provides comparable sales, defined as the aggregate of: (1) year-over-year sales for stores that have been open as the same brand at least one year and whose square footage has not been expanded or reduced by more than 20% within the past year, with prior year's net sales converted at the current year's foreign currency exchange rate to remove the impact of foreign currency rate fluctuation, and (2) year-over-year direct-to-consumer sales with prior year's net sales converted at the current year's foreign currency exchange rate to remove the impact of foreign currency rate fluctuation. Due to the calendar shift in fiscal 2018, resulting from the 53rd week in fiscal 2017, comparable sales for the fiscal 2018 quarterly periods ended
| Abercrombie & Fitch Co. | |||||||||||
| Schedule of Non-GAAP Financial Measures | |||||||||||
| Thirteen Weeks Ended May 5, 2018 | |||||||||||
| (in thousands, except per share data) | |||||||||||
| (Unaudited) | |||||||||||
| GAAP (1) | Excluded Items |
Adjusted Non-GAAP |
|||||||||
| Marketing, general and administrative expense (2) | $ | 124,897 | $ | 5,600 | $ | 119,297 | |||||
| Operating loss | (42,203 | ) | (5,600 | ) | (36,603 | ) | |||||
| Loss before taxes | (45,221 | ) | (5,600 | ) | (39,621 | ) | |||||
| Tax benefit (3) | (3,713 | ) | (1,541 | ) | (2,172 | ) | |||||
| Net loss attributable to Abercrombie & Fitch Co. | $ | (42,461 | ) | $ | (4,059 | ) | $ | (38,402 | ) | ||
| Net loss per diluted share attributable to Abercrombie & Fitch Co. | $ | (0.62 | ) | $ | (0.06 | ) | $ | (0.56 | ) | ||
| Diluted weighted-average shares outstanding: | 68,500 | 68,500 | |||||||||
| (1) "GAAP" refers to accounting principles generally accepted in the United States of America. | |||||||||||
| (2) Excluded Items consist of legal charges of $5.6 million in connection with a proposed settlement of a class action claim related to alleged wage and hour practices. | |||||||||||
| (3) The tax effect of excluded items is the difference between the tax provision calculated on a GAAP basis and an adjusted non-GAAP basis. | |||||||||||
Store Count Activity
| Thirteen Weeks Ended May 5, 2018 | |||||||||||||||||
| Hollister (1) | Abercrombie (2) | Total | |||||||||||||||
| United States | International | United States | International | United States | International | ||||||||||||
| February 3, 2018 | 394 | 144 | 285 | 45 | 679 | 189 | |||||||||||
| New | 1 | — | — | — | 1 | — | |||||||||||
| Closed | — | — | — | — | — | — | |||||||||||
| May 5, 2018 | 395 | 144 | 285 | 45 | 680 | 189 | |||||||||||
| (1) Excludes six and five international franchise stores as of May 5, 2018 and February 3, 2018, respectively. | |||||||||||||||||
| (2) Includes Abercrombie & Fitch and abercrombie kids brands. Excludes six and four international franchise stores as of May 5, 2018 and February 3, 2018, respectively. | |||||||||||||||||